Oil and Gas Lawyer Blog
In Myers-Woodward v. Underground Services Markham, No. 22-0878, the Texas Supreme Court removed any doubt that pore space is owned by the owner of the surface estate, not the mineral estate.
Myers Woodward owns the surface estate of 160 acres in Matagorda County. It also owns a 1/8th royalty on oil, gas and other minerals produced from the land.
Underground Services Markham (USM) owns the salt and salt formations under the 160 acres. USM produced some 2.7 tons of salt from the property between 2015 and 2019. The salt is mined by injecting water into the salt formation, pumping the resulting brine back to the surface and extracting the salt from the brine, creating an underground “salt cavern.”
Myers Woodward and USM disagreed on how royalties on the salt produced should be calculated, and this suit resulted. In the suit, USM contended that it had the rights to the salt cavern created by its mining operation and could use that cavern for storage of hydrocarbons. Thus was raised the issue of ownership of the “space” underground created by the salt mining.
On the issue of ownership of the salt cavern, the Supreme Court ruled in favor of Myers Woodward:
[U]nder the conveyances at issue here, the holder of the surface estate owns the empty underground spaces left behind by the mineral owner’s salt mining. The mineral owner is of course entitled to make reasonable use of both the surface and the subsurface, including caverns, for the production of the property’s minerals. But empty space is not a mineral, no matter how economically valuable it becomes. And storage of hydrocarbons produced off the property is not related, at least under these facts, to the mineral owner’s production of sale on the property. Absent an agreement otherwise, ownership of underground salt does not include ownership of underground empty space within or around a salt formation. Not does it include a right to use that empty space for purposes unrelated to the production of the property’s minerals.
The Court also agreed with Myers’ Woodward’s theory on how royalties on the salt should be calculated, using the “net-back” method to determine the value of the salt as produced, based on proceeds received by USM from sale of the salt less post-production costs. The case was remanded to determine that value.